June 23, 2017

People Knew It Wouldn’t Last Forever

It’s Friday desk clearing time for this blogger. “A hedge fund proposal for freeing Fannie Mae and Freddie Mac from U.S. control is poised to face stiff opposition from investors who say it risks wrecking the mortgage-bond market. The Moelis & Co. blueprint calls for raising tens of billions of dollars in capital for the mortgage-finance companies. The plan, released earlier this month, would also limit the amount of federal money available to offset any Fannie and Freddie losses to $150 billion. ‘I don’t think you could sell virtually any of this debt overseas if it wasn’t government-guaranteed,’ said Scott Simon, who until 2013 managed billions of dollars in mortgage-backed securities for Pacific Investment Management Co. Some of his former foreign clients would have reacted to a limited backstop by asking him to ’sell it all,’ he said.”

“Government-insured Federal Housing Administration (FHA) loans accounted for nearly 8 percent of Bay Area home purchase loans in May, down from 8.6 percent in April and from 10 percent a year ago. Low-down-payment FHA loans accounted for a substantially higher share of home purchase loans in the more affordable stretches of the Bay Area, like Solano County, which had the highest FHA share in May — at 20.8 percent. Contra Costa County was second.”

“The sharpest jump in home sales between April and May was in Napa County, where they rose more than 40 percent. The average home there sold for $622,250 in May, a drop of .4 percent compared to April. In fact, prices fell between April and May in most of the Bay Area, with Solano County’s 1 percent increase being one of only three areas where prices rose.”

“San Francisco ‘is a tale of several markets,’ Coldwell Banker agent Joel Goodrich said. While Pacific Heights, Russian Hill, Noe Valley and the Mission remain strong, ‘the big inventory of new South of Market condos’ is putting pressure on older condos. The website SocketSite highlighted a Hayes Valley condo and a high-end home in Cow Hollow that just sold for roughly the same price they fetched in 2014.”

“Although recent data indicates home sales are declining in the GTA and Greater Golden Horseshoe Area, it does appear that more inventory is hitting the market and that prices are finally coming down. ‘In March, there were 1,566 listings in Mississauga,’ says Alex Ocsai, a Broker/Owner with Royal LePage Meadowtowne Realty. ‘Now, there are 2,592 homes on the market. There are 65 per cent more listings than there were in March. Hitting the high prices in March stimulated a lot of that, people knew it wouldn’t last forever.’”

“Landlords’ confidence has fallen as investors face the prospect of higher tax costs and weakening house prices, according to Kent Reliance research. The lender’s latest Buy to Let Britain report found 41 per cent of landlords are confident about prospects for their portfolios, down from 44 per cent in the previous quarter and 67 per cent three years ago. OneSavings Bank chief executive Andy Golding says: ‘A perfect storm of weakening house prices, higher taxes and lending restrictions have knocked investors’ confidence.’”

“Hong Kong’s K&K Property is among the developers feeling the effect of softening sales. Eager buyers snapped up units in K&K’s upcoming Victoria Skye luxury residential project when the first batches of apartments were put on sale starting late last month. But the developer managed to transact only 80 out of 206 units offered in the most recent round of sales, despite some 2,300 prospective buyers registering their interest.”

“Some observers are predicting a further drop-off in sales this year, driven by an unusually large influx of new housing supply. ‘Developers will offer their projects at competitive prices in view of more than 10,000 new flats available for pre-sale in the second half,’ Louis Chan Wing-kit, vice chairman at local agency Centaline Property told the South China Morning Post.”

“In Beijing, sales of so-called serviced apartments nearly tripled last year to more than 4 million square meters (43 million square feet), accounting for a third of all residential sales, up from just 13 percent in 2015. But sales there collapsed in April, down more than 98 percent year-on-year, while unit prices fell 31 percent in May, the E-House data shows. Developers in Shanghai have suspended sales of all related developments, property agents said. ‘Some cities over-planned their office supply; by converting some of this into apartments would have helped ease the glut,’ said Stanley Ching, head of Citic Capital’s real estate group.”

“Buyer’s remorse has resulted in two house sales falling through on the same day in Melbourne’s north-west, with the buyers ‘disappearing’ overseas. The St Albans buyers chose to give up the small deposit they paid on auction day last month rather than proceed with the sales. Both contracts have been rescinded. Henderson & Ball Lawyers partner Justin Lawrence said there were cases of buyer’s remorse from time to time, but it appeared to be occurring more than in the past.”

“‘I think the market in a lot of areas is barrelling on so hard that people are really being swept along by the process, and just going ‘did I really agree to pay $2 million for that vacant block of land?’ Mr Lawrence said. ‘And they wake up Sunday morning, and they think ‘oh my goodness’ or — as we’ve seen a couple of times — they go home and they speak to their spouse, and their spouse says ‘what do you mean you paid that much?’”

“The $100 billion city rising from the sea next to Singapore has hit a roadblock: China’s capital controls. Subsidized junkets that flew in prospective buyers to development sites in the southern Malaysian state of Johor have dwindled. And some buyers who paid deposits for yet-to-be-built homes are considering canceling their purchases.”

“‘I feel I’m on the horns of a dilemma,’ said Michelle Gao, who paid about 600,000 yuan ($87,825) toward the 1.2 million yuan cost of a two-bedroom apartment at Country Garden Holdings Co.’s vast Forest City development. ‘If the project relies so much on Chinese buyers like me, how on earth are they able to sell in future? Will the construction ever finish?’”

“Few projects are likely to be affected as much as the Chinese-financed developments in Johor, some of which had relied on mainland customers for as much as 90 percent of sales. Six Chinese buyers interviewed for this story said they paid a 10 percent down-payment to Country Garden in showrooms in China by swiping debit or credit cards or using payment services like Alipay. They said the property agents are now telling them they need to go to Hong Kong, Singapore, Malaysia or Macau to swipe their cards to pay the balance of installments, or wire funds to Country Garden’s overseas accounts.”

“Many are worried that would still make them liable under China’s foreign exchange rules. This month, the Chinese government said domestic banks will have to provide daily reports of clients’ overseas transactions of more than 1,000 yuan. ‘I was told it can still be done from Hong Kong, but I’m just scared now,’ said buyer Elaine Xiao. ‘I don’t know what punishment I may get.’ A buyer whose family name is Yu said she doesn’t intend to pay the next installment on her apartment when it comes due this month. She said her agent advised her to swipe her credit card in Hong Kong to get around the rules. ‘I asked the sales agent will you take responsibility when I’m blacklisted in China?’”

“The glut of properties being built in Johor has also affected local developers, Petaling Jaya-based Tropicana Corp. is giving a 25 percent rebate. Yu, the buyer from Guangzhou, worries that the thousands of apartments still to be built at Forest City will be hard to sell without Chinese buyers. ‘My home is still in the ocean,’ Yu said. ‘Locals will not buy homes with prices double the local rate. Without enough residents from China, everything will change.’”